We Think Old Dominion Freight Line (NASDAQ:ODFL) Can Manage Its Debt With Ease

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Old Dominion Freight Line, Inc. (NASDAQ:ODFL) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Old Dominion Freight Line

How Much Debt Does Old Dominion Freight Line Carry?

As you can see below, Old Dominion Freight Line had US$99.9m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has US$717.0m in cash to offset that, meaning it has US$617.1m net cash.

How Strong Is Old Dominion Freight Line's Balance Sheet?

According to the last reported balance sheet, Old Dominion Freight Line had liabilities of US$464.2m due within 12 months, and liabilities of US$677.5m due beyond 12 months. On the other hand, it had cash of US$717.0m and US$599.1m worth of receivables due within a year. So it actually has US$174.4m more liquid assets than total liabilities.

This state of affairs indicates that Old Dominion Freight Line's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$35.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Old Dominion Freight Line boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Old Dominion Freight Line has boosted its EBIT by 53%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Old Dominion Freight Line's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Old Dominion Freight Line may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Old Dominion Freight Line recorded free cash flow worth 60% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Old Dominion Freight Line has net cash of US$617.1m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 53% over the last year. So we don't think Old Dominion Freight Line's use of debt is risky. Another factor that would give us confidence in Old Dominion Freight Line would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.